No-deal Brexit could send food prices soaring, Bank of England warns
Shopping bills could surge by up to 10% if the UK crashed out of the EU, Bank of England boss Mark Carney has warned.
Mr Carney told MPs on the Treasury Select Committee that increased tariff prices, import costs and a sharp fall in the value of the pound would send food prices soaring “quite quickly”, while cars would also cost more after Brexit.
In the most extreme no-deal scenario, he said shopping bills could rise by up to 10%, but even in an orderly no-deal withdrawal, with a transition period, he said grocery prices could rise by 6%.
The warning came as he defended the Bank’s apocalyptic Brexit forecasts last week, saying some of the criticisms were “unfair”.
Mr Carney said there was “no exam crisis” with teams of experts at the Bank behind the Brexit impact analysis, which he stressed was only published at the Treasury Select Committee’s request.
Mr Carney’s comments follow the Bank’s stark warning last week on the havoc a no-deal Brexit could wreak, with the worst-case scenario sending Britain into a recession worse than the financial crisis.
On food prices, Mr Carney told MPs: “In the most extreme scenario, on average your shopping bill goes up by 10% because we have a 25% depreciation.
“If you go to a more orderly scenario transition, it’s something in the range of 6%.
“For individual food products it’s going to vary.
“But what people will do is that if the price of something goes up more than something else, they will switch products.”
On car prices, he added: “The direction of travel is clear, but the size (of price rises) will depend on the nature of the withdrawal.”
The Bank’s Brexit report last week said a cliff-edge Brexit could see growth fall by up to 8%, the pound crash, inflation soar, interest rates jump, unemployment skyrocket and send house prices down by nearly a third.
But the analysis prompted a vicious backlash, with pro-Brexit Conservative MP Jacob-Rees Mogg describing Mr Carney as a “second-tier Canadian politician” and claiming he had damaged the Bank’s reputation with his repeated Brexit warnings.
Mr Carney told MPs: “The first set of criticisms of our releasing this information is, in our judgment, unfair.”
He added: “There was no exam crisis. We didn’t stay up all night – you asked for something that we had and we brought it and gave it to you.”
The Governor also said that the worst-case scenario impact of Brexit was also a “low probability”, given the extreme assumptions.
“These are low probability events in the context of Brexit,” he said.
Labour MP John Mann gave Mr Carney his backing and hit back at Mr Rees-Mogg, pointing out that the Committee had “unanimously” asked the Bank to provide the analysis.
He said: “What Rees-Mogg did was contemptuous of parliament, in suggesting that you weren’t being straightforward with this committee.”
Continuing his defence of the Bank’s doomsday scenario relating to interest rates – which are modelled to increase by 5.5% in an extreme hard Brexit – Mr Carney said: “The market has never experienced something like this.”
Responding to recent criticisms from former Bank rate-setter Andrew Sentance, relayed to him by an MP, the Canadian added: “There was a time, a simpler but less successful time, when all the Bank did was focus on inflation and we all know how that turned out.
“The reason the financial sector is ready for Brexit is because we stress the financial sector to the kitchen sink, which is what you’d expect.”